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November 8, 2013

When the owners of Hulu - Walt Disney Co., 21st Century Fox and Comcast Corp. - opted not to sell the online video site, Disney Chief Executive Bob Iger said, "Hulu has emerged as one of the most consumer friendly, technologically innovative viewing platforms in the digital era." If that's the case, then why is Netflix getting a potentially big-ticket Disney property instead of Hulu?

In announcing that it struck a deal with Netflix for four new series based on Marvel Entertainment characters, Disney not only bypassed its broadcast and cable properties, but also the online streaming service that is struggling to compete with Netflix. To be sure, Netflix has deeper pockets than Hulu. This package of shows will probably cost Netflix several hundred million in license fees. But the owners of Hulu said just last summer that they would invest almost $1 billion to make it more competitive with Netflix and Amazon. What better way to do that than put on compelling original content aimed at young viewers?

By going with Netflix, Disney is reducing risk. Netflix gives it cash, and Disney makes a show. If it works, they all win, and if it doesn't, only Netflix takes a bath. If Hulu gets the show and it flops, then Disney and Hulu lose. On the other hand, if the show works on Hulu and brings it more subscribers, then Disney wins twice. It is a risk, but if one is in the business of asset building, then risks must be taken. And wasn't the purpose of buying Marvel to feed the Disney platforms?

Bypassing Hulu once again sends the message that the site will play second fiddle to other interests of its corporate owners. This is, of course, why the owners initially decided to sell Hulu in the first place. After the Hulu sale was called off, media analyst BTIG media analyst Rich Greenfield said it was a smart move. "We think the worst thing they could have done is selling to a distributor, making a distributor stronger or increasing a distributor's leverage," Greenfield said. Maybe. Or maybe the owners decided they didn't need to sell Hulu to make a rival stronger. Los Angeles Times

Cablevision Systems Corp. swung to a third-quarter profit as the cable operator reported higher revenue, though customer rolls shrank. While Cablevision maintains a high penetration of video, broadband and voice services in its main coverage area around New York City, it has faced increased competition in its own backyard from telecommunications peers, such as Verizon Communications Inc. 's fiber-optics services, as well as streaming-video services like Netflix Inc.

Cablevision this year sought to sharpen its focus on its core market, agreeing to sell the western cable system it bought just a few years ago to Charter Communications Inc. for $1.6 billion. The sale helped Cablevision to maintain one of its strengths of being regionally clustered, which has allowed it to be efficient in marketing and in deploying services like digital cable and cloud-based digital-video recording faster than other cable operators. The Long Island-based company reported it lost 37,000 video customers, 18,000 voice subscribers and 13,000 high-speed data customers since the second quarter. Total customers reached 3.2 million, down 29,000 from the second quarter.

Overall, Cablevision reported a profit of $294.6 million, or $1.10 a share, compared with a year-earlier loss of $3.8 million, or a penny a share. The year-ago period included losses on extinguishment of debt and certain write-offs of $61.1 million, compared with similar losses of $16.5 million in the latest period. Per-share earnings from continuing operations, which exclude its western cable system and Clearview, rose to 22 cents from a penny. Revenue grew 1.8% to $1.57 billion. Analysts polled by Thomson Reuters were looking for a per-share profit from continuing operations of 11 cents on $1.57 billion in revenue. Shares closed Thursday at $15.63 and have risen 4.6% so far this year. Wall Street Journal

AT&T Inc. has agreed to pay the federal government $3.5 million to settle claims it knowingly overbilled a program for the hearing-impaired.

The government alleges AT&T billed the Federal Communications Commission $16.5 million over a two-year period for an IP Relay service, which allows deaf users to send audible messages via the Internet, despite knowing the vast majority of calls were from con artists in Nigeria and other foreign countries.
The settlement with the Justice Department resolves AT&T's remaining liability after the company previously agreed to pay $18.25 million as part of a May consent decree with the FCC. AT&T didn't admit any wrongdoing as part of the settlement. "While we continue to deny the allegations, we concluded that the most productive course was to resolve what was left of the litigation through a voluntary settlement," an AT&T spokesman said.

The IP Relay program works by allowing deaf users to type messages that are then read aloud to the listener at the other end by call-center employees at companies like AT&T. The FCC reimburses the companies at a rate of roughly $1.30 per minute from its Telecommunications Relay Services Fund. As part of the May settlement, AT&T agreed to pay $7 million into the fund, and voluntarily contribute another $11.25 million to the U.S. Treasury. The government's complaint alleges as many as 80% of the calls processed and billed by AT&T between November 2009 and December 2011 were made by users attempting to target Americans for credit card fraud and other scams. Those users were ineligible to take part in the system, which is only for hearing and speech-impaired individuals in the U.S.

The complaint also claims AT&T knowingly switched from verifying users by postcard to an online registration system in order to facilitate the fraudulent calls. The switch resulted in the number of registrations rising from roughly two per day to between 40 and 100, many of which submitted obviously false names and addresses consisting of random characters such as "nbdk" and "jhgfajhs." "We are committed to protecting the integrity of the program, and the public funds used to support it," Assistant Attorney General Stuart F. Delery said in a statement.

The allegations were initially raised in a whistleblower claim filed by a former AT&T call-center employee, who will get a total of $525,000 from the settlement. An AT&T spokesman said the company no longer offers the IP Relay service, but said the company's exit from the service wasn't related to the allegations. "Use of IP Relay service had declined over the past several years as alternative technologies, such as video relay services, smartphones, tablet, texting and apps have become popular options for people with disabilities." Wall Street Journal

The (Los Angeles) City Council is rushing to revive an idea it left for dead four years ago: creating a broadband network that provides free wireless Internet access throughout the city. On Wednesday, the council instructed city technology officials to draft an invitation for contractors to bid on the project. But before the council gets too enamored with the idea of free Wi-Fi for all, it needs to take a hard look at how best to bring broadband access to those who need it most.

There's no shortage of broadband in the city. According to the state Public Utilities Commission, 99.6% of the households in Los Angeles County had access to high-speed connections by the end of 2011, if they wanted and could afford them. But only about two-thirds of the city's residents actually connect via broadband at home, a Public Policy Institute of California survey found. That's a lower rate than in any other urban area in the state.

Then-Mayor Antonio Villaraigosa announced plans for a citywide Wi-Fi network in February 2007, arguing that it would encourage economic development and narrow the "digital divide" between those who had broadband and those who didn't. City leaders around the country shared Villaraigosa's ambition, and more than 200 projects were eventually announced. But most of them, including Los Angeles', were abandoned in the face of high costs and other problems that proved insurmountable. Building a citywide Wi-Fi network in Los Angeles was expected to cost more than $60 million back then; the estimates go as high as $100 million now.

New Councilman Bob Blumenfield resurrected the idea shortly after taking office in July, arguing that the demand for connectivity today is greater, the cost of providing it lower and the consequences of not being online more severe. He also contends that broadband is an essential part of local infrastructure in the 21st century, vital to attracting investment and tourism. Those are all good points, but the right response isn't necessarily to build a network covering the entire city - including neighborhoods and commercial areas that are already well served. Nor does providing free broadband automatically close the digital divide; people also need computers and the skills to use them. Thankfully, the council hasn't committed to any particular approach or technology. Instead, it simply instructed the Information Technology Agency to come up with a request for proposals that might entice a vendor to "build out ... some level of free broadband service to all city residents."

Ideally, the city will identify where the real gaps are in connectivity, then attract partners in the telecommunications industry to fill them. But it's not enough just to offer private operators money-saving access to the city's utility poles and conduits; the city's plan has to enable its partners to cover the cost of running and maintaining the network for years to come. If it can't meet those thresholds, then the new plan seems destined to meet the same fate as the old one. Los Angeles Times